With Settlement, Marc Dreier Is Off the Hook for Court Testimony

As Bankruptcy Beat has detailed, the disgraced former lawyer was scheduled to appear later this month in a New York courtroom to testify in a lawsuit tied to the bankruptcy of Mr. Dreier’s defunct law firm.

The suit, against a hedge fund that allegedly profited from Mr. Dreier’s long-running fraud, was settled Wednesday. The deal means Mr. Dreier can stay in the low-security federal prison in Minnesota where he’s serving out a 20-year sentence---the outcome he had been hoping for all along.

Under the settlement, Westford Asset Management will pay $32.2 million to the Dreier LLP estate, Benjamin King, an attorney for the firm’s bankruptcy administrator, said in court Wednesday. But the law firm’s creditors will have a long wait before seeing any of the money. The millions aren’t due until Dec. 31, 2020, according to Mr. King, because Westford’s assets currently have little liquidity but are expected to become more liquid over time.

In a statement, Westford’s counsel said it believes the settlement is in the best interest of both sides and that ending the case “will allow the funds to return to their focus on increasing value and preserving the funds' investments.”

Judge Stuart Bernstein of U.S. Bankruptcy Court in New York expressed surprise Wednesday at the delayed payout but told the parties to proceed with the settlement and to notify his counterparts at the federal district court that Mr. Dreier won’t need to appear.

Last week, Judge Bernstein determined that his bankruptcy courtroom in lower Manhattan presented too many security risks for the prisoner testimony and that the proceeding should take place in the more-secure federal court.

Sheila Gowan, the attorney winding down Mr. Dreier’s former law firm, sued Westford in 2010 to recover $138 million that the hedge fund received from Dreier LLP. The suit came a year after Mr. Dreier admitted to using his law firm’s funds to pay investors who purchased $700 million worth of what ultimately turned out to be bogus promissory notes.

Resolving the lawsuit is one of the final tasks in the bankruptcy for Ms. Gowan. Under a plan approved earlier this year, many top-ranking Dreier LLP creditors will be fully repaid, with unsecured creditors receiving an estimated 13% or less of what they are owed.